Actuarially valued gratuity provision counts as a liability, not a reserve, for break-up value under wealth tax rules.

A gratuity provision based on scientific or actuarial valuation is treated as an existing liability, not a reserve, when computing the break-up value of shares for wealth-tax purposes. The court applied the earlier principle that a properly valued gratuity provision reflects the discounted present value of the assessee's future obligation and is therefore deductible. The issue was answered in favour of treating the provision as a liability and against the Revenue.

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Issues: Whether the provision for gratuity, when based on a scientific or actuarial valuation, is to be treated as a liability and deducted, or as a reserve, while determining the break-up value of shares for wealth-tax purposes.

Analysis: The provision for gratuity was held to be deductible where it truly reflected the discounted present value of the assessee's future liability. The earlier decision on the same issue had already accepted that a properly valued gratuity provision represents an existing liability and not a reserve, and that principle was applied to the references under the Wealth-tax Act, 1957.

Conclusion: The provision for gratuity is to be treated as a liability and not as a reserve for computing the break-up value of the shares. The question was answered in the affirmative and against the Revenue.

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